The United States-Mexico-Canada Agreement (USMCA, known as CUSMA in Canada) came into force on July 1. It replaces the 1994 North America Free Trade Agreement (NAFTA), and not only modernizes that initial agreement but relaxes certain requirements and offers greater trade opportunities for numerous industry sectors, innovators, and small to medium-sized businesses. We have looked into several areas of the agreement that could be of interest – and benefit – to our U.S. clients.
Certification of Origin/Originating Goods
The rules of origin determine which goods traded between the three countries qualify for duty-free status. Under USMCA, the permissible level of non-originating goods increases from seven per cent to 10 per cent (of total value, cost, or weight of the good). While proof of origin is also required, there’s no longer a need for a NAFTA-style ‘Certificate of Origin’ issued by the exporter. Said documentation is more flexible under USMCA, and can include items such as invoices provided these documents include details such as importer/exporter/producer information, HS classification, description, origin, blanket period, and dates/signatures. More information about certification and originating goods can be found here.
De Minimis Thresholds/Low Value Shipments
Increased de minimis thresholds for goods imported into Canada can benefit e-commerce businesses that sell low-value goods to Canadian customers. Under NAFTA, the threshold was CAD $20. Under USMCA, the values increase to CAD $40 for taxes, and CAD $150 for duties. Therefore, any item sold for under CAD $40 will be subject to neither duties nor taxes; items greater than CAD $40 but less than CAD $150 will be taxed as per the rate at destination (Goods and Services Tax, or GST/HST or provincial sales tax), but not subject to duties.
Canada has agreed to increase the low value shipment (LVS) threshold to CAD $3,300 (up from CAD $2,500), and this applies to both commercial importations and express shipments. In addition to the increased flexibility regarding proof of origin, all three USMCA parties have committed to maintaining a system that would allow importation documents to be submitted electronically, and to allow for e-signatures. More information about LVS and de minimis thresholds can be found here.
Small and Medium-Sized Enterprises (SMEs)
USMCA includes a stand-alone chapter specifically dedicated to SMEs, and includes measures to cut red tape at the border, support e-commerce exports, promote opportunities in government procurement, and protect intellectual property. Other provisions that benefit SMEs include:
- Online publications of laws, regulations, searchable databases, and other items that will expedite release of shipments,
- Establishing an informal shipment level of $2,500 – express shipments under this threshold will benefit from reduced paperwork, and
- Exempting digital products distributed electronically from duties.
Instead of including new bilateral procurement commitments in USMCA, all parties have agreed to rely on existing commitments under separate trade agreements. Canada and the U.S. will continue to access each other’s procurement services as per existing commitments (i.e. the World Trade Organization (WTO) Agreement on Government Procurement).
Changes have been made to the automotive portion of the USMCA, and are designed to ensure that key auto parts are made in North America. As per USMCA:
- At least 70 per cent of a producer’s steel and aluminum purchases must original in North America, and
- A vehicle’s total North American regional content must be 75 per cent (up from 62.5 per cent under NAFTA).
The USMCA also includes rules outlining labour value content for cars and light trucks, and stronger rules of origin for parts. More information about automotive rules of origin can be found here.
Dairy & Agricultural Products
Under the USMCA, U.S. dairy producers now have access to an additional 3.6 per cent of Canada’s dairy market, as well as greater access for poultry and eggs. Note too that:
- Milk classes 6 and 7 are eliminated, with component prices for these products calculated based on an agreed U.S. reference price,
- Tariffs have been eliminated for whey powder and margarine,
- U.S. grown wheat varieties registered in Canada will now have an official Canadian grain grade, and
- Enhanced rules for science-based sanitary measures, and protections for proprietary food formulas.
Textiles & Apparel
This section in the USMCA strengthens the North American supply chains, and requires certain products to be sourced in North America. De minimis rules for non-North American textiles are up to 10 per cent from seven per cent, and new customs enforcement provisions are implemented to prevent fraud and increase transparency associated with administration and allocation of tariff preference levels (TPLs). More information about changes focused on the textile and apparel sectors can be found here and here.
As mentioned above, products distributed electronically are not subjected to duties under USMCA. The USMCA’s digital provisions are designed to:
- Facilitate digital transactions and allow data to be transferred across the border,
- Promoted collaboration on cybersecurity, consumer privacy protection,
- Protect proprietary source code and algorithms, and
- ‘Crack down’ on data localization and storage, thereby enhancing and protecting the digital ecosystem.
More information about digital trade changes under the USMCA are here.
USMCA improvements in financial services include prohibition on local data storage, and market access to cross-border services (such as portfolio management, investment advice, and electronic payment services). The USMCA financial services chapter summary offers greater detail regarding rules and changes.
USMCA offers additional intellectual property protections, and includes:
- Copyright on works for 70 years after the author’s death, up from 50,
- Other works protected for 75 years after first publications,
- Standards against digital music, movie, and book fraud,
- Trademark protection, and
- Patent protection for innovators and SMEs, with a minimum term of 15 years for design patents.
Additional details can be found in the intellectual property chapter summary.
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